April 25, 2006

Gas Fumes


From FoxNews: Bush Announces Gas Price Investigation Ahead of Speech.

With gas prices on the rise, President Bush on Tuesday offered suggestions for reducing oil costs, including increasing refinery capacity and conservation, to diversify away from oil through the use of alternative fuels like ethanol.

Under pressure from lawmakers and the public who have alleged price gouging by oil companies, the president also said he has ordered a probe of price manipulation and market speculation. On Tuesday, he also ordered a temporary halt of deliveries to the Strategic Petroleum Reserve. ...

In an effort to appease congressional leaders who suspect the oil companies are unfairly raising prices, the president said he asked his Energy and Justice departments to open inquiries into whether the price of gasoline has been illegally manipulated.

The Ayn Rand Institue covered the topic back in February: The Myth of "Price-Gouging" by Alex Epstein.

The term "price gouging" implies that gas stations have an ability to forcibly inflict harm on us--but they do not. Any price we pay for a gallon of gasoline--whether $1 or $3--we pay voluntarily, based on the value of the gasoline to us. If we think we are spending too much on gasoline, we are free to drive less, to buy more fuel-efficient cars, to use carpools or busses, or to travel by bicycle or on foot. Gas station owners cannot force us to buy gasoline; they can only offer us a trade, which we are free to accept or reject.

But, one might ask, without anti-"price gouging" laws won't owners of gasoline charge the absolute highest prices they can? Absolutely, and they have every moral right to do so--just as consumers of gasoline have every right to pay the lowest prices they can find. Gas station owners are not our servants. They are producers who spend money, exert effort, and assume risk to bring a product to market. They own the gasoline they sell, and like any property owner they should be free to set the terms of sale.

Since we pay the lowest price that we can find for gasoline (and never more than it is worth to us), and gas stations sell gasoline for the highest price they can get (and never less than it is worth to them), the price of gasoline is a reflection of mutually beneficial trade--the essence of proper interaction under capitalism. For a gas station owner to charge what the market will bear is no more "gouging" than it is for a computer programmer--or a cashier--to negotiate for the highest salary he can get.

UPDATE -- April 26: From Forbes: Why The Pump Isn't More Painful by Nick Schultz. (via InstaPundit)

But what's more interesting about these stories is what they don't tell you. For example, the Associated Press reports that "surveys indicate drivers won't be easing off on their mileage, using even more gas than a year ago." Now why is that? If prices are rising, one would expect consumers would use less.

The answer might be in some of the long-term trends that the short-term media lens is too cramped to see. Energy prices may be rising, but energy itself is much less important to consumers and to the overall economy than it once was.

Also here's an interesting chart showing an individual's history (to 1979) of gasoline costs adjusted for inflation.

Posted by Forkum at April 25, 2006 04:47 PM